- Markets nosedive in 'flash crash.' It happened so quickly that traders could barely keep up, but in a span of about five minutes yesterday, the Dow tumbled more than 550 points. Before staging a partial recovery, the Dow lost a total of nearly 1,000 points, wiping out $700B of stock market value at the market's low and marking the Dow's largest intraday percentage loss since 1987. Several factors may have contributed to the rout, including overall negative sentiment, concerns about a European debt contagion and the possibility of erroneous trades (media reports pointed to Citigroup (C) as a possible culprit, which Citi and futures market CME Group denied). Another contributing factor was the system of trading computers that run on algorithms; as markets fell through trading limits, the algorithms intensified the sell-off, sending orders to venues with no investors willing to match them. A shutdown among some high-frequency trading firms may have further exacerbated the problem. The SEC and CFTC said they're reviewing “unusual trading” that contributed to the fall; lawmakers have already scheduled a hearing on the issue for next week; and Nasdaq plans to cancel trades of 286 securities that fell or rose more than 60% from their prices at 2:40pm. The Dow pared some of its losses by the end of the day, closing -3.2% to 10,520.32. S&P -3.2% to 1,128.15. Nasdaq -3.4% to 2,319.64.
- Anomalies from the flash crash. In addition to the overall drop in markets, there were some strange anomalies among specific stocks. Boston Beer (SAM, closed -0.7% to $55.82), Accenture (ACN, -2.6% to $41.09), Exelon (EXC, -4.2% to $41.86) and CenterPoint Energy (CNP -3.5% to $13.88) all hit zero shortly before 3:00. Sotheby's (BID) went the other way, its shares briefly spiking to $100,000 before closing -5.6% to $33. Duncan Niederauer, CEO of the New York Stock Exchange, said of a sudden drop in Dow component P&G (PG, -2.3% to $60.75) that the "$39 trade will not stand"; shares dropped around $20 in a minute, which may have helped send the index into freefall.
- Thinking twice about IPOs after market sell-off. Yesterday's sudden market plunge, along with continued concerns over Greece and associated contagion risks, has prompted many companies to re-think their plans for initial public offerings. Early yesterday, Swire Pacific canceled a $2.7B Hong Kong IPO because the market sell-off weakened demand. Ron Burkle's Americold Realty Trust also decided to cancel what would have been the largest U.S. IPO of 2010 because of "market conditions." After Thursday's close, Ryerson Holding Corp (RYI) and Madison Square Capital (MDQ) pulled planned share flotations. MIE Holdings (MIE) cut its IPO value by 60%. If declines continue, various deals and restructurings could be put on hold as well.
- G-7 holds contagion conference call. The G-7 plans to hold a conference call today to discuss the Greek debt crisis. Japanese Finance Minister Naoto Kan said he expects European members "will probably explain" the steps taken to help Greece, but "I don’t think we will be asked to take specific action, such as currency intervention.” The fact that the G-7 nations have scheduled the call at all indicates leaders see growing risks to the global economic recovery, especially as Europe continues to struggle with contagion worries (see more below). The call comes ahead of a eurozone summit later in the day where leaders will finalize the Greek rescue plan, among other issues on the agenda.
- European credit markets hit by contagion risks. Money markets showed banks may be the most reluctant to lend to each other in six months, while the cost of protecting against European bank failures has soared. European company bond sales have essentially ground to a halt. During the U.S. market sell-off yesterday, one trader said he had heard fixed-income desks in Europe shut down early because there was no liquidity, bringing lending to a stop. "This is similar to what took place pre-Lehman Brothers," he said.
- Simon raises bid for GGP. Simon Property Group (SPG) raised its bid for General Growth Properties (GGP) late yesterday to $6.5B, or $20/share, in a last-minute attempt to get GGP to choose Simon's offer over a rival bid from Brookfield Asset Management (BAM). Simon also sweetened its offer to recapitalize GGP as a passive shareholder, raising the price of its investment to $11/share from $10. The double bid comes ahead of a key bankruptcy court hearing today.
- THL Partners buys InVentiv. Pharmaceutical services provider InVentiv Health (VTIV) agreed to be acquired by private-equity firm Thomas H. Lee Partners for around $1.1B. The $26/share offer is a 7% premium to InVentiv's closing price on Wednesday, but the company's shares had already risen 42% since the end of March, when it first confirmed that it had been approached by investors. InVentiv closed +5.1% in after hours trading.
- Blackstone, P-E firms pursue Fidelity National. Private-equity firms Blackstone Group (BX), Thomas H. Lee Partners and TPG Capital are reportedly in talks to buy Fidelity National Information Services (FIS), which has a market value of nearly $11B. If completed, the deal would be the largest leveraged buyout since the financial crisis began. Bank of America (BAC), JPMorgan (JPM) and Citigroup (C) are said to be leading the financing for the potential buyout. Shares of Fidelity National closed +10.3% in yesterday's trading.
- Genzyme explores sale of non-core units. Genzyme (GENZ) will look into selling three non-core businesses, including genetic testing, diagnostic products and its pharmaceutical materials unit. Genzyme also said it will buy back $2B in shares, $1B of which it will finance with debt. The moves are aimed at restoring investor confidence.
- Goldman talks settlement with the SEC. Goldman Sachs (GS) lawyers met with SEC representatives this week to discuss a potential settlement, but sources said the two sides still remain far apart and the preliminary talks haven't yet covered any specific settlement terms. However, Goldman's willingness to even engage in the talks suggests the firm is scaling back the aggressive defense it launched following the SEC's charges. Premarket: GS +1.4% (7:00 ET).
- Lawsuits against BP could be resolved quickly. Around 200 lawyers with suits against BP (BP) met to discuss a strategy for resolving nearly all the spill-related litigation within three months. Thousands of claims by commercial fishermen, seafood processors, tourism-related businesses and others could be combined into a single multidistrict case which would keep the lawsuits from dragging on for years. Meanwhile, as the first of the oil slick hits the shore, BP said finishing work on the first relief well will likely take around three months. Premarket: BP -1.1% (7:00 ET).
- AIG considers repayment options. AIG's (AIG) board has reportedly formed a special committee to consider ways to repay the government, which has committed $182.3B to the insurer. AIG will report its quarterly earnings results later this morning. Premarket: AIG +0.7% (7:00 ET).
- U.K. election hangs in the balance. Britain's opposition Conservatives became the biggest party in parliament, but with several seats still unannounced, a 'hung parliament' appears inevitable. That prospect is hurting British equities, and the pound is -0.4% against the dollar (7:00 ET).
- BOJ pumps extra liquidity. The Bank of Japan moved to offer ¥2T ($21.6B) in overnight liquidity today, trying to “increase markets’ sense of security” in light of the ongoing debt crisis in Greece. Bank of Japan is the first central bank to react to fears about sovereign debt default by adding liquidity.
Earnings: Friday Before Open
- AES (AES): Q1 EPS of $0.26 beats by $0.01. Revenue of $4.1B (+25.8%) vs. $3B. (PR)
- Cimarex Energy Co (XEC): Q1 EPS of $2.00 beats by $0.26. Revenue of $449M (+114.4%) vs. $429M. (PR)
Earnings: Thursday After Close
- Canadian Natural Resource (CNQ): Q1 EPS of $1.21 misses by $0.01. Shares -0.3% AH. (PR)
- CareFusion (CFN): Q1 EPS of $0.26 misses by $0.07. Revenue of $1B (+12.8%) in-line. (PR)
- Chimera Investment (CIM): Q1 EPS of $0.19 beats by $0.05. Shares +4.1% AH. (PR)
- Clean Energy Fuels (CLNE): Q1 EPS of -$0.07 misses by $0.04. Revenue of $39M (+29.1%) vs. $43.2M. Shares -6.6% AH. (PR)
- Consolidated Edison (ED): Q1 EPS of $0.93 beats by $0.12. Shares -0.7% AH. (PR)
- Crocs (CROX): Q1 EPS of $0.07 beats by $0.05. Revenue of $167M (+23.7%) vs. $160M. Shares +1.3% AH. (PR)
- DCT Industrial Trust (DCT): Q1 EPS of $0.10 misses by $0.01. Revenue of $58.6M (-6.8%) vs. $59.2M. (PR)
- General Cable (BGC): Q1 EPS of $0.50 beats by $0.14. Revenue of $1.1B (+5.3%) vs. $1.2B. Shares -0.8% AH. (PR)
- Kraft (KFT): Q1 EPS of $0.49 may not be comparable to consensus of $0.45. Revenue of $11.3B (+26%) vs. $11B. (PR)
- Las Vegas Sands (LVS): Q1 EPS of $0.07 beats by $0.05. Revenue of $1.3B (+23.1%) in-line. Shares -1.4% premarket (5:46 AM). (PR)
- Leap Wireless International (LEAP): Q1 EPS of -$0.90 misses by $0.24. Revenue of $654M (+11.4%) vs. $655M. Shares -4.7% AH. (PR)
- Liberty Global (LBTYA): Q1 EPS of -$2.75 may not be comparable to consensus of -$0.14. Revenue of $2.2B (+28.3%) vs. $2.1B. (PR)
- Millipore (MIL): Q1 EPS of $0.99 misses by $0.10. Revenue of $463M (+13.5%) vs. $437M. (PR)
- Nationwide Health Properties (NHP): Q1 EPS of $0.54 beats by $0.02. Revenue of $102M (+5.2%) vs. $95M. (PR)
- PerkinElmer (PKI): Q1 EPS of $0.31 beats by $0.02. Revenue of $465M (+6.9%) vs. $447M. (PR)
- Public Storage (PSA): Q1 EPS of $1.15 beats by $0.04. Revenue of $348M (-2.2%) vs. $386M. (PR)
- Rovi (ROVI): Q1 EPS of $0.45 beats by $0.05. Revenue of $130M (+17%) vs. $122M. Shares +1.7% AH. (PR)
- SandRidge Energy (SD): Q1 EPS of $0.01 misses by $0.17. Revenue of $211M (+32.7%) vs. $244M. Shares -2.7% AH. (PR)
- Sapient (SAPE): Q1 EPS of $0.07 beats by $0.03. Revenue of $183M (+28.7%) vs. $180M. Shares +0.8% AH. (PR)
- Scientific Games (SGMS): Q1 EPS of $0.05 may not be comparable to consensus of $0.11. Revenue of $216M (-6.2%) vs. $233M. Shares -1.6% AH. (PR)
- Sequenom (SQNM): Q1 EPS of -$0.27 in-line. Revenue of $11M (+22.1%) vs. $10M. Shares -1.4% AH. (PR)
- Weingarten Realty Investors (WRI): Q1 EPS of $0.41 misses by $0.01. Revenue of $137M (-2.3%) in-line. Shares -8.4% AH. (PR)
- In Asia, Japan -3.1% to 10365. Hong Kong -1.1% to 19920. China -1.9% to 2688. India -1.3% to 16769.
- In Europe, at midday, London -0.3%. Paris -1.8%. Frankfurt -0.6%.
- Futures: Dow +0.7%. S&P +0.9%. Nasdaq +1.1%. Crude +0.9% to $77.82. Gold +0.45% to $1202.70.
Friday's Economic Calendar
- 8:30 Non-farm payrolls
11:30 Fed's Plosser: Economic Outlook
3:00 PM Consumer Credit
- Notable earnings before Friday's open: AES, AIG, CF, EIX, HUN, IAG, MIR, PCG, POM, WCRX, XEC
- Notable earnings after Friday's close: BRK.B
Seeking Alpha editors Eli Hoffmann and Jason Aycock contributed to this post.
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